Canadian firm to buy Pimlico, Laurel tracks

Magna Entertainment Corp. will acquire a 51 percent stake in the Maryland Jockey Club, the umbrella organization for the two racetracks as well as a training center in Bowie, and will have a right to buy the rest.

Jockey Club President and majority owner Joseph A. De Francis and his sister, Karin De Francis, will remain at the helm of the company, with day-to-day control under five-year management agreements.

They will also hold 49 percent of the voting stock in the operation, though the deal provides for a possible buyout of their interest in the fifth year. Joseph De Francis will be nominated for a seat on the Magna board of directors.

"We could not be more thrilled," said Joseph De Francis, who inherited the tracks upon the death of his father, Frank, in 1989. "This is the right thing to do for the Maryland Jockey Club and for Maryland racing. You look down the road and see what is happening in racing and you can't remain a mom-and-pop island."

The deal, which is subject to approval by the state, values the enterprise at $117 million. Only about half of that amount will change hands at closing because Magna isn't buying all of the stock at first and will assume $30 million in debt.

Magna, based in Aurora, Ontario, just north of Toronto, has assembled the largest chain of racetracks in the world in just four years. The combined operation, which includes California's Santa Anita Park and Florida's Gulfstream Park, account for about 25 percent of all thoroughbred wagering in North America. It is also building a track in Austria.

Led by strong-willed auto-parts magnate Frank Stronach, Magna has bet heavily on a coming revolution in racing, one that will see more fans watching and wagering on races over their desktop computers and on specialty television networks. Magna owns an Internet wagering service, XpressBet, and is backing a satellite- and cable-TV start-up dedicated to racing.

Laurel and Pimlico, home of the Preakness Stakes, provide a needed boost in Magna's holdings, filling a summer and fall gap in its racing calendar when many of its other tracks aren't running live meets. The two Maryland tracks run 220 days of live racing a year.

One of the oldest names in sports, the Maryland Jockey Club was founded in 1743. Among its early fans was President George Washington, who attended meets in Annapolis. It employs about 900 and holds the Preakness, which remains one of the biggest events in the sport and is the second installment of the Triple Crown series that begins each spring with the Kentucky Derby.

Jim McAlpine, president of Magna Entertainment, promised improvements to the tracks and training center consistent with his company's vision of racetracks as "total entertainment" centers that draw new fans to the sport. That could mean concerts and shops at the tracks and possibly even lights for night racing.

"Basically we should build on the successful experience of places like Vegas, where they took gaming, in our case parimutuel wagering, and they combined it with world class entertainment and shopping experiences for their customers," McAlpine said.

He said it is too soon to be specific on the improvements but said the Preakness would remain at Pimlico, in Baltimore. "One of our first priorities is to make Pimlico a better home for the Preakness," he said.

Magna supports slot machines at racetracks, and will lobby for it, but thinks racing can thrive on its own. Only one of its tracks, a harness operation in Canada acquired this year, has slot machines.

"When you have a player like Magna, which has ownership of so many tracks and seems to have some pretty deep pockets, they're not afraid to make long-term investments."

With the purchase of Laurel and Pimlico, Magna will either own, lease or have agreements in place to buy 14 racetracks in the United States and Canada. The company, whose stock is traded on the NASDAQ, made a profit of $13.5 million last year on revenues of $519 million, compared with a profit of $441,000 on revenues of $413.6 million the year before.

The company's stock was trading at $6.05 last night, down 39 cents over the day.

Bill Boniface, a third-generation Maryland horseman, said he is nervous about seeing the tracks' control slip to out-of-state interests but glad Joseph De Francis will stay in charge for the foreseeable future.

"He has Maryland roots and Maryland at heart. If they will allow him the control, it will be a good thing," Boniface said.

Alan Foreman, attorney for the Maryland Thoroughbred Horsemen's Association, said the deal "has the potential to be a tremendous plus for Maryland racing, or it could be a nonstarter. We've heard plans to enhance Maryland racing before. That's why many people in Maryland racing are skeptical. Obviously there's concern about their [Magna's] follow-through on their vision. But in fairness to Magna, it's still early."

Maryland Senate President Thomas V. Mike Miller said he sees the ownership change as a "shot in the arm" for Maryland's horse racing industry.

"There's nowhere to go but up," the Prince George's County Democrat said.

House Speaker Casper R. Taylor Jr. said, "What it means to me is Maryland racing will be reinvigorated, with leadership coming from Magna."

Gov. Parris N. Glendening had no comment. The two leading candidates to replace him welcomed the news.

Michael Morrill, a spokesman for Lt. Gov. Kathleen Kennedy Townsend, a Democratic candidate for governor, said, "We see this as a beneficial step toward coming to some conclusion about how to best preserve the industry for the long term."

A Republican candidate, Rep. Robert L. Ehrlich Jr., said, "An infusion of cash and excitement and partnership and willingness to help Maryland racing and promote it is a great thing."

Boosters of Magna say the firm is providing millions of dollars in fresh capital and a forward-looking vision to a sport badly in need of both. Detractors say it is paying too much for its properties - it has outbid the more conservative Churchill Downs Inc. for many of its acquisitions, including the Maryland tracks - and hasn't demonstrated sufficient ability to successfully run a racetrack.

Stronach's vision of restoring the sport with new-fangled technology and old-fashioned customer appeal is tempting but not without risk, said Adam Steinberg, a gaming analyst with CIBC World Markets in New York, which advised the stockholders in the transaction. "It's a good idea, but because it hasn't been done before it raises the question: 'Will it work?'"

He said Stronach is "definitely a visionary."

Another analyst isn't so sure. Ryan L. Worst, with Dresdner Kleinwort Wasserstein, issued a 60-page report last month that said Magna had paid too much for tracks that didn't offer the kind of quality racing that could compete with Churchill Downs for Internet and TV bettors. He also questioned Magna's operation, noting that betting had fallen at a number of its tracks.

Under the deal, other Maryland Jockey Club stockholders, including General Counsel Martin Jacobs and the New York-based investment firm Leucadia National Corp., will relinquish their stakes in exchange for a total of $49 million.

The De Francis siblings will receive $1.6 million. Karin will own slightly more stock than her brother, about 25 percent to his 24 percent. The two will have the right to appoint three members of a new, seven-member board of directors for the club, with the balance to be appointed by Magna.

Their service as officers is "subject to the normal corporate oversight" of the board, according to a statement from Magna.

Magna also agreed to pay each of the two De Francises $9.2 million at closing for the option to purchase the rest of their stock during the fifth year of Magna's ownership. Magna would pay the De Francises $18.3 million if it chooses to exercise the options. They will also have the right to force Magna to buy their stock over the next five years.

If at the end of five years no one has exercised these rights, the De Francises will remain as minority shareholders and will be free to negotiate new management contracts. "If everything is great, we can continue into perpetuity," Joseph De Francis said.

Another part of the deal protects the stockholders if slots are legalized in Maryland. Leucadia, Jacobs, a group of Laurel shareholders known as "the Guida Group" and the DeFrancises have agreed to form a joint venture to pursue "the potential development and management of additional gaming" according to a statement. This group would receive some of the profits from slot machines, Joseph De Francis said.

The Maryland Racing Commission has 30 days to investigate Magna's background. Then, the commission will conduct a hearing and vote on the sale. If approved, the deal would close in the fall.

Lou Ulman, chairman of the racing commission, said Magna's approval isn't necessarily a sure thing. He said he wants to ensure that Magna will keep Pimlico and Laurel Park open, continue year-round racing in Maryland and retain the Preakness at Pimlico. "We could deny their application if we deem it not to benefit Maryland racing."

John Franzone, a member of the racing commission, said he, too, has questions for Magna leaders: "OK, give us your track record of what you've done with racetracks you've acquired, and, more important, what are you going to do here?"